Pierre Christian N'GUESSAN Instructor: Dr.

Walamatien COULIBALY

FINANCIAL STATEMENT ANALYSIS AND INTRODUCTION TO LOAN

STRUCTURING
HOMEWORK 3
Case 3.4 : HYDROGENICS CORPORATION

a. Consolidated income statement

Clear Hydrogenics Corporation (HYGS / NASDAQ) Edit
Annual Consolidated Income Statement
Amounts Rounded to : Thousands (except per share amounts)

Results for the Years Ending

Dec 31, 2013 Dec 31, 2012 Jan 0, 1900

Net sales $ 42,413 $ 31,697

Less: Cost of goods sold 30,352 26,448
Gross profit 12,061 5,249 -
Sales, general and administrative 16,275 13,027
Research and development (R&D) 2,566 4,452
Restructuring, impairment, and amortization
Purchased in-process R&D
Other operating expenses 3 (5)
Total operating expenses 18,844 17,474 -
Operating profit (loss) (6,783) (12,225) -
Other income (expenses), net excluding interest expense (1,699) (243)
Earnings (loss) before interest and taxes (8,482) (12,468) -
Interest expense 426 329
Earnings (loss) before taxes (8,908) (12,797) -
Provision for (benefit from) income taxes (8,908) (12,797)
Earnings (loss) after taxes - - -
Extraordinary items, net
Discontinued operations, net
Cumulative effect of changes in accounting principles, net
Other after-tax income (loss), net (8,908) (12,797)

Net profit (loss) $ (8,908) $ (12,797) $ -

Basic earnings per common share $ (1.04) $ (1.74)

  Common size income statement
Hydrogenics Corporation (HYGS / NASDAQ)
Annual Common Size Income Statement
Summary percentages in italics will not foot due to rounding

Results for the Years Ending

Dec 31, 2013 Dec 31, 2012 Jan 0, 1900

Net sales 100.0% 100.0%

Less: Cost of goods sold 71.6% 83.4%
Gross profit 28.4% 16.6%
Sales, general and administrative 38.4% 41.1%
Research and development (R&D) 6.1% 14.0%
Restructuring, impairment, and amortization 0.0% 0.0%
Purchased in-process R&D 0.0% 0.0%
Other operating expenses 0.0% 0.0%
Total operating expenses 44.4% 55.1%
Operating profit (loss) (16.0%) (38.6%)
Other income (expenses), net excluding interest expense (4.0%) (0.8%)
Earnings (loss) before interest and taxes (20.0%) (39.3%)
Interest expense 1.0% 1.0%
Earnings (loss) before taxes (21.0%) (40.4%)
Provision for (benefit from) income taxes (21.0%) (40.4%)
Earnings (loss) after taxes 0.0% 0.0%
Extraordinary items, net 0.0% 0.0%
Discontinued operations, net 0.0% 0.0%
Cumulative effect of changes in accounting principles, net 0.0% 0.0%
Other after-tax income (loss), net (21.0%) (40.4%)

Net profit (loss) (21.0%) (40.4%)

Effective tax rate N/M N/M

b. Analysis of the profitability

From 2012 to 2013, revenue of hydrogenics corporation increased and went from
32millions to 42millions, that is an increase of almost 35% which is quite huge actually.
This was mainly due to revenue earned on the contract for integrated power propulsions
system for an OEM, as well as a delivery of the major order of fuel cell modules to their
partner, CommScope, Inc. In the mean time, we also notice an increase in the gross profit,
(16.6% to 28.4% in 2013). According to the MD&A section reasons for that are mostly
the improvement of margins from the Onsite generation business unit as well as the
increase in revenue from the Power Systems business unit.
As far as operating expenses are concerned, there is a decrease from 55.1% in 2012 to
44.4% in 2013. Indeed, the 8% decrease in research and product development combined
with the weakening of the euro relative to the USD which led to a 2.7% decrease in
selling (41.1% to 38.9%), general and administrative (SG&A) expenses, are the cause of
that overall decrease in operating expenses.
The decrease in operating expenses cause the operating income to increase (earnings
before interest/taxes, provisions for income tax, follow the same upward trend) whereas
income expense remains constant.
Eventually we can say that hydrogenics corporation is doing quite well, and they should
keep on doing this way. Since operating expenses are decreasing, they profitability is
growing on the opposite direction, that is going upward. However they should be careful
about potential future economic downturn such as terrorist attacks, or political crisis
which may dramatically affect the profitability of the firm.